DTEK power plants to face tiny rise in 2017 prices, regulator forecasts

Ukraine’s power sector regulator, the NERC, has approved its forecasted wholesale electricity price for 2017, according to its Dec. 20 statement. The average forecasted price of thermal power plants (TPPs) will be UAH 1,300/MWh next year, an increase of about 5% yoy compared to the average UAH 1,240/MWh in 2016, we estimate. This price expectation will affect 12 TPPs operating on the non-occupied territory of Ukraine, including the eight TPPs of DTEK Energy (DTEKUA).

Based on the NERC’s resolution, the average wholesale electricity price in Ukraine (the price of all producers and wholesale market intermediaries) is forecasted at UAH 1,431/MWh in 1Q17, a 10% drop  compared to the current level. In 2Q17-4Q17, the price will be even smaller at UAH 1,264/MWh.

Alexander Paraschiy: The forecast looks negative for DTEK Energy. The expectation of just a 5% yoy increase in the average electricity price will hardly cover the inflation costs of the holding’s coal and power segment. If the real price will match the regulator’s expectations, this will lead to declining profitability for these DTEK segments next year.

The above-mentioned profitability decline could be offset by significant improvement in the profits of its power distribution segment, provided the NERC introduces the so-called RAB-based pricing. At this stage, we see little risk for DTEK to be unable to smoothly repay its debt obligations in 2017 and we remain optimistic about the holding’s Eurobonds.